Hulu’s latest hit: Its own soap opera

FORTUNE – These days, it’s not enough to host digital TV programs. Companies that stream programs like Netflix, Amazon, and Hulu are moving into producing original content to win new subscribers. Lately, Hulu has been doing its rivals one better by living out a financial soap opera worthy of a multi-episode series.

Here’s the latest drama going on at the company: Hulu, the digital-TV initiative backed by Disney (DIS) and News Corp. (NWS), appears to be moving closer to a sale. In the latest development, Guggenheim Partners, a global financial firm managing $170 billion in assets, was hired by Hulu to advise it on a sale of the company, according to Reuters.

A flurry of recent media reports have indicated that a number of entities are interested in buying Hulu: Yahoo (YHOO) and Amazon have reportedly kicked its tires. Disney may buy out News Corp., or vice versa. Peter Chernin, who helped set up Hulu when he was at News Corp., bid $500 million for the company through his media-holding company.

And as Reuters reported, there may even be a bid from Guggenheim Digital Media, an investing unit of — that’s right — Guggenheim Partners, the same company hired to advise Hulu on a sale. Guggenheim Digital is headed by Ross Levinsohn, who recently served as Yahoo’s interim CEO and who earlier oversaw digital media as an executive at News Corp.

There’s plenty of backstory to this soap opera. In 2007, Hulu was first developed by News Corp. and NBC Universal as a place to host their online TV content. At the time, pirated TV shows were frequently uploaded to sites like YouTube, prompting endless rounds of Whack-a-Mole with takedown notices. Worse, under Google (GOOG), YouTube was emerging as a successful video business that was beginning to negotiate with networks for content, and Apple’s (AAPL) iTunes store and Netflix (NFLX) were emerging threats as well.

Big media, mindful of what happened to music sales after the labels were slow to respond to the rise of digital music, wanted to take control of their digital-video destiny. For News Corp and NBC, that meant a company that was at first unnamed, then tentatively named Newco and quickly nicknamed ClownCo in the press. Christened Hulu in the summer of 2007, the company formally launched the following March.

Having dual owners who compete in the cutthroat media industry sowed the seeds of problems that are entangling the company today. Disney became a part owner in 2009, and NBC gave up corporate control of the company after it was acquired by Comcast (CMCSA). Lately, News Corp. and Disney have bickered over things as fundamental as business models. The former wanted to focus on subscriptions, the latter on advertisements.

Early on, Hulu shook off its status as an old-media joke with a single move: Hiring Jason Kilar as CEO. Kilar had spent nearly a decade at Amazon (AMZN), where he shepherded the bookseller’s entry into videos and DVDs and later oversaw the company’s North American media business as well as newer initiatives like Marketplace, community, and media storage.

Kilar silenced critics by building a company with a creative culture and a video interface that compared to Netflix’s in its simple, useful design. Hulu’s revenue increased 60% to $420 million in 2011 and grew another 65% to $695 million last year. Suspicions that the company was losing money were confirmed when Disney reported an equity loss in its investment in a filing last November.

In 2010, Hulu was expected to go public in a post-recession market that was warming to web companies. Late in the year, it shelved its IPO plans, but in 2011 it hired Guggenheim as an advisor after receiving an unsolicited bid to buy the company. Reports at the time said that Yahoo was the interested buyer (back when Ross Levinsohn was at Yahoo.) After nobody showed interest in the $2 billion price tag, Hulu’s owners reconsidered and took the company off the block. Instead, Hulu again signaled it would go public.

An IPO never came about, but Providence Equity Partners, another early investor, sold a $200 million stake to the company last October. That amount was double the $100 million Providence invested in Hulu in 2007 for a 10% stake, and the deal valued Hulu again at $2 billion.

Under Kilar, Hulu has grown at a rate that is respectable among startups, but the joint owners of News Corp. and Disney have hobbled its potential growth. Kilar pushed to build a service that would resonate with couch potatoes in a competitive market. But News Corp. and Disney seemed more interested in preserving their traditional business models. Kilar wanted News Corp. and Disney to invest more money in content — Hulu spent $500 million last year, Netflix is spending $2 billion a year — but the two giants balked.

Few were surprised when Kilar stepped down as CEO earlier this year along with Hulu’s CTO Rich Tom. Hulu named insider Andy Forssell as an acting replacement. Given the uncertainty facing the company’s future, it may be some time before a permanent CEO can be hired.

That uncertainty is the dilemma haunting Hulu in April 2013. Just what is it supposed to be? It’s on track to become a billion dollar business this year — not bad for an Internet startup forged in an alliance of big media giants known for strangling them. But its owners keep pulling it into different directions. It’s a popular site with 3 million subscribers, but if the company is indeed sold, it’s not clear that current owners will let it have the golden egg: next-day access to their TV programs (hence Chernin’s lowball $500 million bid, a quarter of Hulu’s internal valuation).

In a digital-video market where everyone from Apple to Google to Amazon to Netflix is angling for control, Hulu already has what most of them want: a strong footing. In some respects, Hulu is Netflix’s most credible rival. In other respects, it’s the anti-Netflix. Netflix CEO Reed Hastings built his company by taking bold risks. Hulu’s squabbling, wishy-washy, half-in-half-out owners keep it from making the same kinds of bold moves needed for it to thrive.

A Hulu sale to a bigger company with plenty of financial resources could change that, except for one thing. Hulu’s current owners also provide the TV shows and movies that make up its most valuable content, and those companies may soon take that content with them — or demand higher licensing fees — if they lose control of the company.

Hulu was launched as a digital TV company that wasn’t supposed to threaten old media. Instead, it’s Hulu that’s now threatened by traditional media giants. And that could mean an unhappy ending to this long-running soap opera.